The idea of metrics for a pre-seed startups can feel rather oxymoronic; what does it even mean to have metrics when the business is so early? To add to the confusion, investors say conflicting things about the types of metrics they are looking for.
Forget the investors for a second - as a founder, what do YOU want to know about your business? You are smart and talented and could be doing a million other things. What things should you be looking at to validate your own ideas?
Metrics: I think of financials and metrics as a convenient snapshot of the business and what it could grow up to be - I’m looking for any evidence that you are building a capital efficient, sustainable long-term BIG business.
- Does anyone want the thing you’re selling? Revenue - always a great sign when someone is willing to pay you to make their problem go away
- Do you have a good sense of who your customer is and how to reach them? Much of early customer discovery is figuring out who your best customer is - saying everyone is pretty unhelpful and will also result in highly inefficient customer acquisition. The discipline to focus and define the right customer will show up in your CAC numbers. Customer Acquisition Cost (CAC) - we can benchmark against known numbers in the industry, and also by channel
- Once you’ve acquired the customer, how is the product experience? Often we spend a ton of effort and $ acquiring customers, but comparatively less on what happens once the download or sign-up occurs. Retention - It’s far easier and cheaper to retain someone than to go out and acquire a new customer. My partner Elizabeth Yin did a great deep dive on retention.
- NPS - How likely is a customer to recommend your product and service to another? Word of mouth is one of the most powerful early growth channels, and having the discipline to start instrumenting this can provide powerful clues and insights into what people are loving about your product.
Trends: We don’t just want to see numbers in isolation, chances are the numbers will be too small to make any useful conclusions. What we want to see is how are things trending?
- How fast is revenue growing, especially when taken against the known GTM initiatives you’re pursuing? Slow can mean lack of PM fit, or poor execution, or both.
- Is CAC coming down over time? How is it trending as you grow volume and add channels? You can double click here into specific funnel steps
- Is retention improving over time? There’s an opportunity to dig deeper into which segments retain vs not, why etc.
Projections: We often joke that projections for early-stage businesses are more an exercise in fiction writing than true business projections. Despite that, I do like seeing where businesses are performing relative to plan as a measure of how much control and understanding a founder has over her business. In the early days, this will be quite far off, but the delta between plan and actual execution should improve over time as one gains a better understanding of one’s business.
Cash burn & Runway: This gives you a sense of how company is managing cash relative to key milestones ahead of next fundraise; and what might happen if they had to try to get to breakeven (might not be possible for heavy infra/tech build outs).
Hope this is useful to folks - if there are other metrics you like, or hate, please drop me a note. Would love to incorporate more views!